Deloitte Haskins and Sells, an auditing network firm of Deloitte India, on Thursday challenged the constitutional validity of National Company Law Tribunal’s (NCLT) power to sack and ban an auditor in case of some financial chicanery of the company is under investigation.
Deloitte Haskins and Sells challenged the constitutional validity of Section 140 (5) of the Companies Act as well as the Centre’s plea at NCLT that seeks a five-year ban on former auditors of IL&FS Financial Services (IFIN).
Senior advocate Amit Desai, who appeared for the Deloitte, told the court that the facts of the case are very much similar to the plea filed by BSR & Associates LLP, an affiliate firm of KPMG.
Last month, in temporary relief to BSR, the court stayed the proceedings against the audit firm in the Mumbai bench of the NCLT until further order.
“We are challenging very much the constitutionality of the section,” argued Darius J. Khambata, senior counsel for BSR Associate, “When the government moved to NCLT under Section 140 (5) to remove auditors, we had already resigned from the company and hence we don’t know how to remove a person who has already left the position.” Under section 140 (5), NCLT has the power to remove statutory auditor of a company either suo motu or after the central government files an application.
If NCLT passes an order under the law, such a person or firm can’t be appointed as auditors for five years. The counsel for BSR argued that the section is ultra vires on the premise that it only allows for summary proceedings which is left to the sole discretion of the NCLT. “The harsh section is only for auditors and not for the promoters,” argued Khambata, adding that under the law the management, who might be fraudulent, have been given chance to be heard but not auditors.
A division bench of Justice Ranjit More and NJ Jamdar adjourned the matter to October 16.
Law firm Veritas Legal is advising Deloitte in the case, while VP Singh, partner of law firm AZB & Partners, is advising BSR & Associates in the dispute.
In August, BSR & Associates and N Sampath Ganesh, a partner with the firm, filed a case against the government after the tribunal allowed its proposed removal as auditors of IFIN — a position BSR had already resigned from— for alleged role in financial irregularities in the firm.